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Is it Time to Catch the Cloudera Falling Knife?

Cloudera (NYSE:CLDR) stock is in freefall, so the question here is if it’s a good time to catch this falling knife. This never ending slide in the stock is strange since on paper, CLDR should be soaring as it the company operates in the new-tech world arena. It provides services to help corporations manage their workloads and data analytics on premises and in the cloud. They even have a subscription model which is all the rage these days. Yet for some reason the stock cannot sustain rallies.

CLDR Stock: Is it Time to Catch the Cloudera Falling Knife?

Source: craft.co

Last October, CLDR merged with Hortonworks and for a brief while investors cheered the move. This was the chance for two smaller competitors to team up so they could better compete against the behemoths like Oracle (NYSE:ORCL) and Microsoft (NASDAQ:MSFT). Unfortunately, the party did not last long and investors resumed selling the stock as it set new lows.

Wall Street was once again caught trapped in this persistent selloff. Even the experts were fooled, as back in October, CNBC’s expert Jim Cramer heralded the merger move as smart and that CLDR stock was a good stock to own. So far this has not been the case so maybe there are better days ahead.

Problems in CLDR Stock

The price action in CLDR has been horrendous. The spike into the merger headline marked the absolute top. Since then it fell 50% from that burst high to the Christmas low. The bulls did battle valiantly, but their efforts were futile. The bounce off the trough failed miserably once more. On Feb. 28, Cloudera stock nose dived 15% in about a week. It then cratered another 20% when they reported their earnings.

Clearly Wall Street is not happy with what they saw, as it continues to sell CLDR with conviction. Since their IPO, CLDR stock has been in a descending bearish channel. Every attempt at a breakout from it has failed emphatically. There were moments of exuberance like on the September earnings but the rallies have so far always reversed and set new lows.

So to answer the questions if it is time to catch this falling knife, the easy answer is: No.

Once it lost the $13.50-per-share level, CLDR triggered a bearish pattern that targeted the all-time lows of around $10 per share. It is now almost there. So it would seem that it is hitting rock bottom. But, a proverbial knife that is falling this consistently is dangerous to catch as it will cost me digits. It often seems like it’s a bottom only to turn out to be another trap door waiting to open. Case in point what happened to General Electric (NYSE:GE) stock last year.

So what looked like a bottom then turns into a ledge. For CLDR this happened at the $13.50 zone and could happen again here near $10 per share. I cannot guaranty that won’t be the bottom, but there is enough doubt so not worth the risk.

So when would it be safe to buy it?

Ideally I need to see a clear bottoming process. This includes a double bottom of sorts, then a string of higher lows. It would also be best to see a small trend of higher highs before committing long the stock. I accept the risk of waiting too long and missing out on the first few bucks of the bounce.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.